Google Walks Past $400

Valuing a red hot stock is still tough, though.

When last month's third-quarter earnings blowout prompted some analysts to predict the stock would top $400 , skeptics were quick to emerge. After all, Google shares already looked gaudy, fetching $303 apiece heading into the company's Oct. 20 financial report.

But now Google is up more than 350% since its public offering last year and the stock opened at $401.68 Thursday. Many investors clearly expect the stock to continue its upward trajectory. Volume in out-of-the-money Google calls is rising, indicating that people expect the stock to keep jumping.

Lately, the shares were at $402.13, up $3.98, or 1%.

Google has reached a point in its history where merely mentioning that it's considering adding a new service is enough to create a buzz. Newspapers are concerned about the impact that the company's Google Base service will have on their classified business. Publishers have filed suit to block Google's plans to scan books.

There are some kinks in the Google juggernaut. It hasn't been able to make any headway in markets beyond search, including e-mail and comparison shopping, and it continues to face heightened competition from rivals including Yahoo! ( YHOO) and Microsoft ( MSFT).

"It's warranted to be cautious," says Larry Haverty of Gabelli & Co., which owns a small position in Google among its $28 billion in assets under management. "They have attracted a lot of attention from competitors."

Even so, figuring out the Mountain View, Calif., company's growth prospects over the long term remains tricky.

"There is no question a lot of analysts think that Google is going to rule the world," said Darren Chervitz, director of research at Jacob Asset Management, which owns Google shares. But he cautions that "it is a business that is entirely dependent on advertising. It won't take much of a slowdown for people to question the multiple."

Chervitz, whose firm also owns shares of the TheStreet.com Inc. ( TSCM), the publisher of this Web site, doesn't believe Google's business is showing any signs of faltering. Even so, his apprehension highlights the challenge Google poses to investors who survived the Internet bubble of the late 1990s.